UK Inflation Near 3-Year High

UK consumer prices accelerated more-than-expected to a near three-year high in June, data from the Office for National Statistics showed on Wednesday.

Inflation rose to 2.5 percent in June from 2.1 percent in May. This was the highest inflation since August 2018.

The rate also remained above the central bank’s 2 percent target and economists’ forecast of 2.2 percent.

At the June monetary policy meeting, the Bank of England had cautioned that inflation will temporarily exceed 3 percent. But the bank said it is unlikely to tighten monetary policy anytime soon.

The annual price growth was largely driven by higher prices of food, second-hand cars, clothing and footwear and fuel. These increases were partially offset by a large downward contribution from games, toys and hobbies.

On a monthly basis, consumer prices gained 0.5 percent, following a 0.6 percent rise in May. The expected rate was 0.2 percent.

Core inflation, that excludes energy, food, alcoholic beverages and tobacco, advanced to 2.3 percent in June from 2 percent in May.

Another report from the ONS showed that output price inflation slowed for the first time since May 2020.

Factory gate inflation eased marginally to 4.3 percent in June from 4.4 percent in May, while economists had forecast the rate to climb to 4.8 percent.

On month, output price inflation halved to 0.4 percent from 0.8 percent. The expected rate was 0.6 percent.

At the same time, input price inflation came in at 9.1 percent, down from 10.4 percent a month ago and forecast of 10.8 percent.

Month-on-month, input prices fell 0.1 percent, in contrast to a 1.2 percent rise in May. Economists had forecast prices to rise again by 1.2 percent.

Paul Dales, an economist at Capital Economics, said inflation will eventually stick above the 2 percent target. But the economist is not expecting that to happen until 2023 and the bank is unlikely to tighten policy until 2024.

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